Investment Firm Defends Chesapeake, Saying Leadership Issues 'Moot'

Investment advisory firm Southeastern Asset Management came to the defense of Chesapeake Energy in a recent newsletter, saying that issues surrounding leadership controversy are now moot thanks to changes in the company's governance.

"We go forward at Chesapeake with one of the best and most vested independent boards that we have seen," said O. Mason Hawkins, chairman and chief executive officer, in Southeastern's June 30 shareholder newsletter.

Southeastern serves as advisor to the Longleaf Partners Fund, Chesapeake's largest shareholder.

"Combining the new governance with some of the best physical assets we have owned makes us enthusiastic to have Chesapeake as a core holding in the Partners fund," said Hawkins.

To protect its clients' interests, Southeastern said it became more active in pushing McClendon and Chesapeake's board to focus on de-risking the balance sheet, managing costs and reducing discretionary spending while gas prices stayed at uneconomic levels, and focusing on operating the company rather than convincing the world of the long-term case to natural gas.

Thanks to pressure from Southeastern and investor Carl Icahn and Chesapeake's declining stock price, along with a looming proxy vote, some of the most significance governance changes that Southeastern has ever witnessed took place, including:

  • the split of the chairman and CEO roles,
  • the early end to the Founders Well Participation Program,
  • replacement of four board members with representatives of Hawkins and Icahn.

The company also named former ConocoPhillips Chairman and Conoco Chief Executive Officer Archie Dunham as its new independent non-executive chairman.

Hawkins blamed the media for publishing a rapid onslaught of news stories after natural gas prices hit a new low in April, questioning board oversights, potential conflicts of McClendon, and Chesapeake's cash flow.

These reports "blurred the lines between perception and reality," said Hawkins, adding that most of what was reported was previously known.

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